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Monday, November 13, 2017

Logistics Management and Distribution

Meaning of Logistics
Logistics means to make the goods available to the end customer at the right place on the right time. In this fast moving world, the companies want to reach to their customers more efficiently and quickly than their competitors so that the customers purchase their products. In this situation it becomes very essential for the businesses to keep a close track on the overall process starting from the procurement of the material to how the finished products are supplied to the front end so that they can be in reach of the target segment.
Logistics consists of all parties involved, directly or indirectly, in fulfilling a customer request. It not only includes the manufacturers and suppliers, but also transporters, warehouse, retailers, and customers themselves. It consists of the flow of products and services from:
Ø  Raw materials suppliers.
Ø  Final goods manufacturers.
Ø  C & F agents, Wholesalers, distributors
Ø  Retailers.
Ø  End customer.

Logistic Management
The word ‘warehousing’ means the efficient management of the stock (inventory/finished goods) and supplying it at the time of need. ‘Inventory Management’ means handling the inventory at all the stages of the product so that the production and the sales process runs smoothly. ‘Transportation Management’ means the control of the part of travelling of the goods from one place to another. Thus ‘Logistics Management’ can be referred as the linkage between various stages of transferring the goods starting from the manufacturer (owner) to the needy (end customer). The idea of an organization behind this sequence is to make the goods available to the end customer effectively, efficiently and economically.

This process of Logistic Management is explained by the example of the packaged drinks below: This process starts with the sourcing of the raw materials (plastic granules) by the firms/suppliers and then selling it off to the plastic bottle manufacturers. These bottle manufacturers then convert these granules to the plastic bottles (of the desired form, shape, size, colour etc) as per the need of the customer. The components manufacturers supply the other parts such as printed labels, seals, and corrugated packing boxes/plastic packing sheets. The final product manufacturers (companies which deal in packaged drinking water, soda, soft drinks etc.) source these bottles, pack their produce in them and sell them to the wholesalers/distributors who then sell them to the retailers as and when the orders are received. These retail counters are available for the end customer for purchasing the goods. The feedback about the product from the customer and the faulty goods (if any) are brought back via reverse logistics and are delivered at the appropriate place (final product manufacturer/intermediary product manufacturer etc. as per the nature of the fault).
From the above example it is evident that the sequence of operations and the companies which are engaged in delivering the products and the services to the customer including procurement of raw material components, production of raw materials and procurement of intermediate components, manufacturing of final goods, delivery, and reverse logistics; constitutes the Logistics. When any firm ignores the interests and the complexities of the other channel members while planning its logistics, it leads to increased cost of the Logistics and longer delivery time to the retailer point. This may ultimately reduce the demand of the product due to non availability of the product.

In earlier times between 1950s to 1960s, the US manufacturers were employing a range of option to reduce the cost of supplying the products from one place to another. This was followed by the advanced techniques being used for managing the inventory such as:
Ø  JIT (Just in Time Inventory)
Ø  TQM (Total Quality Management)
Ø  BPR (Business Process Reengineering
Ø  Increase in supply chain efficiencies
As discussed in the earlier times, the customers had very little option to choose from and they had to purchase what was being offered in the market. The reason of this was that the number of manufacturers was comparatively very less. At that time, there was the natural demand of the products and services or it can be said that there was the pull for the products from the customers end. But over the period of time with the growth of competition the customer got a wide variety of option in terms of brands and designs. The companies now have to strive hard in order to retain the customer and to keep him brand loyal. They have to compromise in terms of price, offer timely schemes and offers etc. thus pushing the products towards the customer end. And the most important parameter is to make the goods available at the right place at the right time. And this is possible only with the efficient and well planned supply chain.

Supply Chain in itself is not limited to the transportation of the products. It involves the whole process ranging from the ordering of the raw material to the final delivery and then getting the feedback (as discussed above). Various elements of the Supply Chain Management are discussed below:
1)      Customer Analysis: The first and the foremost step is to determine what the need of the customer is. the purchasing company has to get the requirements through various sources before starting to plan the procurement and manufacturing process.
2)      Demand Forecast: The next step is to forecast the demand especially for those goods which are supplied through Push Strategy. This helps the purchasing company to allocate the funds for inventory and also plan for the storage space and other parameters.
3)      Inventory Planning: The next step is to plan for the appropriate level of inventory for the goods so as to keep a proper balance between the Ordering Cost and the Carrying Cost.
4)      Evaluate Suppliers: The next step is to call for the quotations from various suppliers and then decide which one of them is best suitable for procuring the desired quality of raw material at appropriate cost.
5)      Logistics: This step is to evaluate the possibility of having own logistics/having the third party logistics or a mix of both. The types of vehicles with capacity specifications are decided for every route.
6)      Purchase: The order is them placed and the numbers of suppliers are selected keeping in mind the risk of the stock outs. The companies generally avoid to have single supplier because it may lead to monopoly type situation and the supplier may start demanding his own terms and conditions when he feels the whole operations of the purchasing company is dependent on him.
7)      Processing: The next step is to schedule the work with respect to the delivery schedule. The purchasing company has to continuously evaluate the quality of the products, and keep the delivery in line with the promise made to the customers.
8)      Delivery: The processed goods and dispatched in the vehicles as decided above according to their route and the timings.
9)      Inventory Analysis: The inventory is analyzed regularly so as to check the reorder the some to avoid the condition of stock out.
10)   Feedback and Reverse Logistics: The process of the feedback from the front end for the improvements in the product/service is delivered to the decision maker in the purchasing company so that necessary action can be taken. Moreover the goods which are not acceptable/are returned by the customer are brought back at the manufacturing location/disposed in between as applicable.

The problems faced by most of the companies in the absence of the supply chain were:
a)      Process Delays: Due to absence of real time information, the companies were facing the problems such as the production was not completed on time, and the product was not made available at the required service point (such as retail store) on time. This sometimes forced the customer to shift the brand which used to create huge loss for the companies.
b)      Expensive Inventories: The companies had to invest huge sum of money on the maintenance of inventories and then bear the carrying cost of the inventories both at the front end and the back end.
c)       Absence of coordination among partners: Due to delay in the supply chain and the exchange of information, the information from the purchasing company to the retail point and the feedback from the retail point to the purchasing company used to be much delayed. Due to this the companies were not able to encashed the opportunities available in the market.
d)      Excessive Uncertainties: The customer (wholesaler/distributor) was not clear whether he will receive his order on time and also whether he will receive or not. Also he was not clear whether the purchasing company has received his order and whether it’s processing has started or not. But with the advent of Information Technology in Supply Chain he immediately gets the acceptance of the order online. And he can track the manufacturing and the dispatch status order of his order online.
e)      Poor demand forecast: The companies which use the push strategy were not able to gauge the actual demand of the product and they kept on producing the products as per their pre set planning. And by the time they used to get the information from the front end, they had already compiled the excessive inventories in stock. Due to this they were not able to respond to the market fluctuations.
f)       Poor quality: The quality of the products used to suffer due to excessive inventories compiled and the lack of customization.
g)      Volume changes: This is the general tendency of the customer to change the quantity of the product or service previously ordered at any point of time. Alternately they can unexpectedly demand more quantity of the product or service than previously ordered. Customers may also change the mix of items in an order and cause an efficient throughout the supply chain. This used to be a problem. Due to longer processing/delivery times, the orders which were already under production/in transit could not be reduced and hence the purchasing company had to bear the extra cost of inventory/cost of bringing back goods. This lead to Bull Whip effect which means distortion of demand information within the supply chain, with different stages having very different estimates of what demand looks like. The result is a loss of supply chain coordination.

The companies have various long term and value enhancing benefits from this supply chain management. The retailers are in the direct contact with the customers and this supply chain is very important for them and if successfully implemented it can create huge beneficial opportunities for them. These are discussed below:
1)      Timely replenishment of stock: The properly managed supply chain helps to deliver the stock to the retailer’s point on time and in proper orders. This saves the huge losses caused due to under stocking and the loss of customers is saved.
2)      Quick response to Market: The supply chain helps the purchasing company to quickly respond to the inputs/feedback received from the market. If it wants to launch any new product as per the need of the market or make modifications in the existing product and place it in the market quickly, it is possible.
3)      Efficient Inventory Management: The current trends in the SCM which helps to track the inventory online and also to check the locations wise details of fast and slow moving goods helps the purchasing company to adjust the quantity of next time deliveries at that location for a product whose sale is very less. This helps to save the accumulation of excessive inventory of that product at that location and saves on the huge spoilage costs.
4)      Cost Benefits: The SCM does not help to reduce the raw material costs. Rather it helps to reduce the overall costs of operations by making the planned deliveries and controlling the quantities delivered.
5)      Globalization: With the help of efficient supply chain the cross border trade has becomes possible. Retailers manufacture their goods at one location and then transport it to other countries and make it available in the same condition.
6)      Reduction of Bullwhip Effect: The reduction in the inventories due to coordinated planning and sharing of information helps to reduce the bullwhip effect and adds to the profits of the purchasing company.
7)      Manage the competition: It helps the purchasing company to manage the competition by timely responding to the actions of the competitors. This is possible due to the timely availability of the vital information of the market.
8)      Other Benefits: Various other benefits which are an after effect of the above mentioned parameters are as follows:
Ø  Improve in the overall operations of the purchasing company.
Ø  Increase in the Return on Investment thus leading to higher profits.
Ø  Greater customer loyalty.
Ø  Benefits to the overall economic development of the country.

Various factors affecting the site selection
Selection of specific site: Once the trading area is shortlisted, the retailer needs to check the sites/shops available in that particular area. He needs to consider various operational factors such as the possibility of storage and expansion, the nature of the adjacent stores; the cost/rent of each site before deciding which site is to be finalized.
1)      Types of Goods: While short listing from the various opportunities available for the store location, the retailer needs to consider the types of merchandise he is going to sell as the main deciding factor. Broadly classified, the goods are of the three types are discussed below:
Convenience Goods are the impulse goods bought frequently or which are the basic necessities and are planned once; and they need not to be re planned every time the need arises. This product type is purchased by a wide range of customers. The retailers selling such goods have to ensure that they are present in the area where there is high flow of the traffic (of their target segment). The location and the nearby areas have the possibility of large displays of the products related matter so as to induce the customer to do impulse purchase. Basically these locations have to be very easily accessible.
Shopping Goods are the goods which are purchased infrequently. They are high involvement planned purchases. The customers are willing to travel a particular distance to visit these stores in order to fulfill their needs. The retailers have to ensure that there is sufficient parking facility for the customers and they spend quality time in their stores. They need to position their store in such a location where the target customer base feels comfortable to visit.
Specialty Goods are bought occasionally and have the specific customer base who buys those particular goods/brands only. For these stores, even the standalone locations are suitable wherein there is no other store nearby. The stores selling such goods are very few and hence customers are willing to visit these stores no matter wherever they are located.
But the main factor to consider here is that since these are premium products, the customers would like to compare the physical products and the prices of the complementary products before making the purchase. Therefore in those cases where the complementary goods are available in the same city/area, the retailers will like to locate their store near the competitors so that customers can make the quick decisions and they can convince the customers in the same visit. Because customer once gone for evaluation to the other store in some other location has very rare chances of coming back
Most of these goods are promoted by the retailer using ‘window dressing’. It means displaying the product in the show window of the retail outlet with the face of the product visible from the street. It creates the long lasting first impression. It also attracts the passersby as well as prospects and invites them to enter the store. Mostly the retailers display their premium/newly launched/well known products in the glass at the front of the store and the products are visible from the road outside very clearly. These displays:
Ø  Remind the consumers about their needs.
Ø  Lure them to come inside the store.
Ø  And to explore the products available.
Ø  Which finally attract them to buy the product?
Such types of the retailers choose the busy square of the road to attract the customers.
2)      Population: The population is the main determining factor for selecting the store. As mentioned in the trading area analysis above, the retailer needs to consider whether the majority of his target customers live in the surrounding areas, or pass by that area or regularly shop from that particular area which he is going to locate his store. The local demographics need to be checked and the profile of the population of that area needs to be studied. This also helps to forecast the possible sales and the scope of expansion in future.
3)      Easy Accessibility: Accessibility affects the number of vehicles and pedestrians that pass by the store i.e. the traffic flow. When the traffic is greater, more consumes are likely to stop in and shop at the store. Traffic counts are particularly important for retailers offering merchandise and as most of the services are bought on impulse, than other wise.
The accessibility of the location is the most determining factor in selecting the site. It means connectivity with the site for customers and suppliers. As discussed earlier that the retailers need to ensure that the sufficient number of people pass by that area i.e. the store is located in the area with sufficient traffic. But traffic cannot be confused with the target customers. Only having sufficient traffic does not mean that the store will have sufficient sales, as all of them cannot be the target customers.
4)      Legal and future considerations: The retailer needs to check with the local authorities regarding the restrictions and the future plans of the area where he is purchasing/getting the location on lease. He needs to check the advertisement rules (whether the hoardings/signage boards in and around the location are allowed, whether he can use lighting boards, the height of the displays allowed, etc.) and then he needs to match those specifications with the requirements of his store. Moreover he needs to check the future plans such as construction of over/under bridge, road leveling etc. which may affect his visibility/traffic flow to the store, and ultimately the sales; and about the various types of licensing requirements for operating the store in that area.
5)      Competition and Saturation: The competition can actually increase the sales or alternately decrease it to the minimum extent on the basis of the merchandise sold and the nature of competition.
Thus stores also facilitate multi-purpose shopping and help customers purchase all their needs at one location i.e. one-ship-shopping. For example: the shopping centers and shopping malls.
6)      Location Cost: Generally when a retailer decides the location, the basic land cost (in case of purchasing the location) or the basic lease cost (in case of taking the location on rent) is considered. But once the location is finalized, there are various hidden factors which are imposed from time to time and make the overall planning ineffective. These factors need to be considered:
Ø  Charges of the security, maintenance, and use of basic amenities in the building where the store is located.
Ø  Charges for the usage and maintenance of common facilities in the building (Escalator, Centralized cooling units, Stairs, Parking etc.)
Ø  Average cost of power used.
Ø  Compulsory membership in the associations required.
Ø  Various of taxes such as property tax are to be paid by the owner of the retail, etc.
        All these factors help the retailer to determine what is the average cost of the location (including rent) that he has to bear and he is in a position to decide whether the locations is profitable for him or not.
7)      Parking facilities: The retailer needs to ensure that there is sufficient parking facility available for the visitors to his store. It is generally seen that sometimes customer wants to shop at a particular store for buying the merchandise, but he doesn’t find the parking space in front of a shop and he moves ahead. Very good merchandize mix and excellent display will be of no use if the location doesn’t have sufficient parking facility.
8)      Owner’s terms of occupancy: Some owners of the retail mall/market place restrictions on type of retailers those are leased space in the shopping centre and are restricted to compete with other retailers from the same location. In these types of locations such as Malls/markets, the better locations always cost more. For example in a strip shopping centre, the better locations are closest to the supermarket.
9)      Multiple locations of the same retail chain: Retail chains such as Big Bazar, More, Subhiksha must consider the area being served by one store and the next store should be at such a location that the areas do not overlap. These retail chains with their multiple stores attempt to achieve promotion and equal distribution economies of scale for all the multiple locations. But in doing so, sometimes the locations are chosen so close to each other that they eat away the sales of each other and this is known as cannibalization.
10)   Types of Lease (in case of rented site): In the case of the site on rent, the retailer needs to check whether the type of lease offered by the owner suits his business operations. Various types of lease options available are mentioned below:
Ø  Fixed Percentage Rate: The retailer pays a fixed percentage of the sales as rent per month.
Ø  Fixed Rate Lease: The retailer pays fixed amount per month over the entire duration of the lease.
Ø  Graduated Lease: The rent starts with a particular amount and then it increase at a predefined rate over the time period.
11)   Conditions of the surroundings: The retailer needs to check the conditions such as environment, noise, traffic flow, etc. and considers that it suits his merchandise mix. Some products need the locations with a particular temperature limits and if not available, they need to be kept in artificial conditions which is not cost effective for the retailer (in certain cases). In certain other cases, the noise in the area doesn’t suit the shopping experience of the customers as the customers prefer calm environment for making their purchase decisions. Hence the retailer should keep all these factors in mind. The dimensions of the site (size, shape) should also be such that it suit the desired store format.
        Other factors which are considered with reference to the surroundings are:
Ø  Availability of the fire and police protection in the area.
Ø  Availability of adequate sanitation facilities.
Ø  Protection from rain/water.
Ø  Restrictions on Sunday sales etc.
12)   Other personal factors: Some retailers consider the distance of the store from their residence and other personal considerations while selecting the location. They need to consider their health and check whether the location fits in their health constraints. They need certain time for their personal self, their family and accordingly they decide the location.
13)   Conclusion: While deciding the location for a retail store, the retailer needs to take proper time and research the area with patience. Even if the retailer has to change his schedule and push back the date of the store’s opening, he must do so. It is better to wait to find the perfect store location than just settling for the first place that comes along. The wrong location choice creates havoc to the business and the investments. After choosing location if the retailer comes to know that various parameters are influencing his sales and he is suffering on the profitability, then nothing can be done. Hence he needs to keep all the factors (technical, marketing, finance, human resources, operations, customers behavior, area related etc.) in mind while finalizing the store location. In addition legal issues need to be considered while selecting a site.